House prices..
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It's certainly a longer time period than we've seen in this country before.
http://en.wikipedia.org/wiki/Japanese_asset_price_bubble
Doesn't mean it can't happen here though. If it does 15 years of deflation wouldn't be pretty.
Same for me - I bought a house because I wanted one. I don't want to rent somebody elses house.
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I think if you can afford the repayments comfortably and aren't planning to move somewhere bigger / nicer for 12 years or so then you can pretty much ignore all the discussion about house prices. It's pretty much irrelevant.
This thread is for the rest of us who don't want to get tied to a 1 bedroom shoebox for over a decade just because we bought at the peak of the cycle.
If you work out the affordability of a smaller mortgage at a high interest rate, as was the situation during the last crash, to todays situation of a whacking great mortgage at lower interest rate - I think you'll find these days people are worse off. Not only because it will only take interest rates to rise to the historical levels of around 7% to wip out millions of overstretched people, but also because you can't rely on wage inflation to shrink the mortgage.
Imagine getting a payrise of 15% every year. A few years and you wouldn't be struggling anymore. These days you'll be lucky to get anyhting over the inflation rate (2.1%) which means you're saddled with that gigantic mortgage and the threat of any financial hiccup tipping you over the edge for years and years.
I doubt we will see interest rates at the 7% mark for some time yet. Given that it is widely regarded that interest rates are now on their way down.
Not yet. However, in the future, it is quite possible that the Government decide that they will erode the high levels of debt by using inflation. The high inflation, will in turn require wages to rise. I cant see this happening for a few years yet though, as a lot would need to happen before we reach this point.
Wage inflation? .... with a billion chinese and indian people all competing to make goods and sell services at prices below what the west can make or offer them for - where is wage inflation going to come from?
No crash unless mortgage rates go up? .... What if the SUPPLY of money dries up like it is right now? Remember people go on about the DEMAND for houses being high, well if the SUPPLY of money is what meets the demand to give you your price then what will the price be if nobody can get a mortgage any more?
Interest rates going down means inflation rockets and people are squeezed more and more to the limit on bills ..... the economy suffers
Interest rates going up means mortgage and debt payments go up which has exactly the same effect .... people are squeezed to the limit and the economy suffers.
Lets be honest here - the next 10 years are NOT going to be in any way like the last ten years!!!
No crash unless mortgage rates go up? .... What if the SUPPLY of money dries up like it is right now? Remember people go on about the DEMAND for houses being high, well if the SUPPLY of money is what meets the demand to give you your price then what will the price be if nobody can get a mortgage any more?
Interest rates going down means inflation rockets and people are squeezed more and more to the limit on bills ..... the economy suffers
Interest rates going up means mortgage and debt payments go up which has exactly the same effect .... people are squeezed to the limit and the economy suffers.
Lets be honest here - the next 10 years are NOT going to be in any way like the last ten years!!!
This is what I can see happening.
It would be thoroughly hypocritical given that the only stated responsibility of the monetary policy committee at the BoE is to keep inflation at the 2% target. That's never stopped the gorvernment before though.
If it did happen and we don't see inflation elsewhere it could end up devastating the British economy though as our exports would become even more expensive than they currently are.
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I think one thing we can all agree on is that these are certainly interesting times indeed for the economy.
I can't really see how the Bank of England can get out of the mess that has been created by having artificially low interest rates for so long. Don't get me wrong, it certainly had the desired effect which was to ward off a recession that threatened to rear its ugly head around the time of the 9/11 attacks.
But what it has created is a monster. It has led to unprecedented house price inflation, and subsequent relaxing of the lending rules by mortgage providers to enable people to still purchase property even with the grossly inflated prices.
Nowadays, everyone just buys whatever the hell they want regardless of what it costs, because it just goes on the credit cards. If there's no money left at the end of the month, everyone just sticks things on the credit cards. If they want a nice new car, it just goes on finance regardless of the interest rate they are being charged.
Eventually when the cards get refused during another shopping trip, then it's easy to take out a personal loan and "pay them off". There hasn't really been any accountability because further cheap and easy credit has always been there to pay things with. I think quite a lot of people have gone a stage further and remortgaged to clear everything. What's the problem with adding £30,000 to the mortgage when the house is "worth" £50,000 more than they paid for it?
The point is though this is still real debt and has to be paid back eventually. As Penfold (sorry I mean Mervyn King) said "House prices are a matter of opinion but debt is real".
The problem the Bank of England has is that the whole house of cards is being kept up by these artificially high house prices. I wouldn't put it past them to heavily fudge the official inflation figure to give them an excuse to cut rates further. This is with energy bills rising by 17%, petrol at £1.20 a litre, and the weekly spend on food going through the roof.
I just don't see what it will achieve though. The LIBOR rate almost certainly won't be affected so mortgage payments won't be any cheaper (with a few exceptions). It just does the same thing as the rate cut just before xmas did, which is send a message to those who should really be cutting back, that they can "spend spend spend" without worrying about the consequences. This might not even work now with the "credit crunch" which means people simply won't be able to get more credit to keep them going.
I can see on the flipside however, that if the Bank of England goes the other way and raises rates to calm people down and encourage people to save, then the whole game of charades will be over as house prices collapse overnight and people realise the money was never theirs to spend in the first place.
It's really a difficult situation for the BOE. Personally I think they will cut rates to keep the party going, but will do so in the knowledge that it's only going to make things worse in the long term. How much longer can they keep maintaining that inflation is only 0.1% above their target rate of 2%.
I can't really see how the Bank of England can get out of the mess that has been created by having artificially low interest rates for so long. Don't get me wrong, it certainly had the desired effect which was to ward off a recession that threatened to rear its ugly head around the time of the 9/11 attacks.
But what it has created is a monster. It has led to unprecedented house price inflation, and subsequent relaxing of the lending rules by mortgage providers to enable people to still purchase property even with the grossly inflated prices.
Nowadays, everyone just buys whatever the hell they want regardless of what it costs, because it just goes on the credit cards. If there's no money left at the end of the month, everyone just sticks things on the credit cards. If they want a nice new car, it just goes on finance regardless of the interest rate they are being charged.
Eventually when the cards get refused during another shopping trip, then it's easy to take out a personal loan and "pay them off". There hasn't really been any accountability because further cheap and easy credit has always been there to pay things with. I think quite a lot of people have gone a stage further and remortgaged to clear everything. What's the problem with adding £30,000 to the mortgage when the house is "worth" £50,000 more than they paid for it?
The point is though this is still real debt and has to be paid back eventually. As Penfold (sorry I mean Mervyn King) said "House prices are a matter of opinion but debt is real".
The problem the Bank of England has is that the whole house of cards is being kept up by these artificially high house prices. I wouldn't put it past them to heavily fudge the official inflation figure to give them an excuse to cut rates further. This is with energy bills rising by 17%, petrol at £1.20 a litre, and the weekly spend on food going through the roof.
I just don't see what it will achieve though. The LIBOR rate almost certainly won't be affected so mortgage payments won't be any cheaper (with a few exceptions). It just does the same thing as the rate cut just before xmas did, which is send a message to those who should really be cutting back, that they can "spend spend spend" without worrying about the consequences. This might not even work now with the "credit crunch" which means people simply won't be able to get more credit to keep them going.
I can see on the flipside however, that if the Bank of England goes the other way and raises rates to calm people down and encourage people to save, then the whole game of charades will be over as house prices collapse overnight and people realise the money was never theirs to spend in the first place.
It's really a difficult situation for the BOE. Personally I think they will cut rates to keep the party going, but will do so in the knowledge that it's only going to make things worse in the long term. How much longer can they keep maintaining that inflation is only 0.1% above their target rate of 2%.
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Require? Isn't it far more likely wages will stay the same and we'll just get poorer? Wages will only increase if money supply increases, it looks more like high inflation and static money supply... Hmmm, that sounds a bit like stagflation!
I knows its nothing to do with house prices.
But our energy bills are only set to higher faster!
Petrol will soon be going up again along with your gas, electric, oil and food bill.
(The list here is endless, for example council tax will soon go up as they try and cover the cost of raising energy bills)
People here forget that these small things can soon tip someone over the edge if they live pay cheque to pay cheque.
But our energy bills are only set to higher faster!
Petrol will soon be going up again along with your gas, electric, oil and food bill.
(The list here is endless, for example council tax will soon go up as they try and cover the cost of raising energy bills)
People here forget that these small things can soon tip someone over the edge if they live pay cheque to pay cheque.
This is true.
The strange thing is that the reasons/indicators (as pointed out in this thread) for things going pair shaped are clear for all to see, however, in practise, when I go out on the streets, all I ever see are people queuing up in shops waiting to buy goods. Even today, as I walked through the streets I overheard a young man saying that he wants to buy the Xbox360. Looking around I saw the shops were extremely busy. I was seeing a lot of people, going to a lot of shops, spending a lot of money. This was at 1500hrs, on a Thursday (not even a weekend, when the shops are really heaving). Even when I goto the supermarket these days I see people buying excessive amounts of food and filling up their trollies like eating is soon to be banned. I look in some of the threads on these very forums and I see pictures of teenagers with 3 flatscreen tv/monitors in their bedrooms.
In this day and age in the UK, I feel our lives now revolve around buying as many consumer items as possible.
Given all this, are we to believe that it is all being paid for using credit? I'm finding it difficult to believe.
Of course its not all going on credit.
But the amount of things you can buy on credit these days is a joke. For example a member of this very forum was telling me that credit is now available within GAME. Now come on, who on their right mind needs credit to be able to buy a £300 PS3.
Also the amount of stuff you see people buy on these very forums on credit may shock you.
No one is saying all... but a lot of it is. Don't we have the highest per-capita debt in the world now? Higher even than America's. Your observation above should not instil confidence, it should be cause for concern.
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I suspect the Bank of England will say these 15%-17% rises in Gas and Electricity costs will be offset by the falling prices of hamster bedding. No reason to raise interest rates then!
exactly - they always ignore inflation when it suits them.
what happens next week is important - if they drop interest rates again then the pound is in big trouble.
I think we might get a hold in January and rise in February. They need hear back from how retailers have done over the christmas period.
i hope so - if they drop further its a dangerous game they are playing.
Sorry lol. I meant a drop in February.
I doubt there shall be any rises in the next 9 months.